Many investors were likely happy to shut the door on 2018 after U.S. stocks posted their worst year since 2008 amid stomach-churning market swings. The Dow Jones Industrial Average fell over 5 percent for the year, the S&P 500 over 6 percent and the Nasdaq Composite nearly 4 percent.
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While a new year is upon us, the same issues that rattled the markets in 2018, such as talk of a looming recession, haven’t gone away. That may mean more volatility remains in the cards for the year ahead, at least in the near term.
FOX Business asked mutual fund giant Fidelity for some tips on navigating the markets in a new year and their advice has little to do with headlines and market swings and more to do with planning, knowing your goals and staying the course.
FOXBUSINESS: Investors have seen some of the biggest market swings in history this year and their investment account balances go down. For those who are nervous, what should they do, if anything, in 2019?
FIDELITY: Your time horizon, goals and tolerance for risk are key factors in helping to ensure that you have an investing strategy that works for you. Even if your time horizon is long enough to warrant an aggressive portfolio, you have to be comfortable with the short-term ups and downs you'll encounter. If watching your balances fluctuate is too nerve-racking for you, think about reevaluating your investment mix to find one that feels right.
But be wary of being too conservative, especially if you have a long-time horizon, because strategies that are more conservative may not provide the growth potential you need to achieve your goals (including funding a retirement that could be 20-30 years). Set realistic expectations too. That way, it may be easier to stick with your long-term investing strategy.
FOXBUSINESS: Those tempted to take money out of their accounts or shift from stocks to cash amid the extreme volatility would likely be short changing themselves. Why?
FIDELITY: Attempting to move in and out of the market can be a costly affair, particularly because a significant portion of the market’s gains over time have tended to come in concentrated periods. Investors face long odds in trying to time the ups and downs of the market, and data show they tend to increase their allocations to stocks ahead of downturns and decrease their exposure just prior to market rallies.
It’s not unusual to have more than one correction in the course of a bull market. In fact, of the 24 prior market corrections since 1928 that did not go on to become bear markets, 12 of them were second or later corrections during the course of a bull market.
In addition, staying fully invested can give investors an opportunity to fully participate in the market’s long-term upward trend.
Waiting until the backdrop feels "safe" to make an investment in stocks has historically not been a good method of achieving future returns. Many of the best periods to invest in stocks have been those environments that were among the most unnerving. In many cases, investors would have been better served by remaining fully invested during the entire period -- enduring near-term pain but not missing out on the subsequent rebound.
FOXBUSINESS: Whether the market rises or falls in any given year, how often should investors be reviewing their investment allocations and when is typically the best time of the year to do so?
FIDELITY: We suggest checking your 401(k) asset allocation at least once a year to ensure that your current asset allocation and contribution mixes still align with your long-term goals. You may want to consider rebalancing if your goals or financial circumstances have changed within the year.
Research on investor behavior within retirement accounts has shown that investors who frequently check their accounts are more likely to earn lower returns than those who check their accounts less often. Seeing the value of your investments decline can make you more likely to react to short-term stock market volatility.
FOXBUSINESS: A portfolio for someone in their 30s-40s compared to someone 10 years from retirement age should be different. How so?
FIDELITY: Given they would have different time horizons for their retirement, their asset allocation would be different. Those further away from retirement can have a larger percentage of equity, while those closer to retirement will likely want to be more heavily weighted in bonds. For more information about diversification, this Fidelity Viewpoints article provides several tips.
FOXBUSINESS: Do you have any additional advice for nervous investors?
FIDELITY: To help ease the pressure of managing investments in a volatile market, you may want to consider an all-in-one fund or professionally managed account for your longer-term goals such as retirement. These different types of accounts offer a range of services and costs but, depending on the specific option, may provide professional asset allocation, investment management, and ongoing tax management.
Rather than focusing on the turbulence, wondering whether you need to do something now or wondering what the market will do tomorrow, it makes more sense to focus on developing and maintaining a sound investing plan. A good plan can help you ride out the peaks and valleys of the market and may help you achieve your financial goals.
Fidelity has 27 million customers whose accounts total $6.5 trillion in assets.